Answers, not IOUs, for Social Security

As the Democrats prepare to convene this week in Denver, and the Republicans gear up for their get-together in St. Paul, Minn., starting Sept. 1, precious little has been said about an issue that touches virtually every American family and, for a brief spell a few years ago, dominated the political agenda.

West Los Angeles resident Marilyn Taylor, 78, is typical of many seniors in relying on Social Security for a significant portion of her income. She told me she received about $1,100 a month from Uncle Sam, which covered about a third of her expenses.

These days, Taylor wonders whether she'll keep receiving her full Social Security payments. And she wonders why neither Barack Obama nor John McCain is focusing on how to shore up a program that's projected to start paying out more than it takes in by 2017 and deplete its trust fund by 2041.

"I don't think either one of them is paying as much attention to this as it deserves," Taylor said.

And it deserves plenty, especially in light of the fact that the first wave of 78 million baby boomers will start retiring next year, placing unprecedented strain on entitlement programs such as Social Security and Medicare.

John Rother, executive vice president for policy and strategy at AARP, said he's sympathetic to Obama's and McCain's desire to steer clear of controversial topics before the election. "It's unrealistic to expect a presidential candidate to lay out the sacrifices -- and they will be sacrifices -- needed to rescue Social Security," he said.

At the same time, Rother acknowledged that the longer our political leaders dither in coming up with a workable solution to the program's funding woes, "the harder this will be to fix."

President Bush took a shot at Social Security reform in 2005, laying out a plan to shift at least a portion of the program's funds to private investment accounts. If nothing else, the proposal got people to talk about Social Security after years of looking the other way.

It ended up as political roadkill, though, once people realized that diverting payroll taxes to private accounts would make the shortfall worse, requiring the government to go deeper into debt.

Also, a lot of folks simply didn't like the idea of reinventing one of the most popular government programs in U.S. history, not to mention investing their retirement savings in the stock market.

So we're back where we started. The first issue to address is ensuring that Social Security's trust fund will be there when we need it. The money was long ago spent by the federal government, which left a pile of IOUs in Social Security's coffers.

Once the trust fund is used up in three decades, the program would require a substantial infusion of cash to pay benefits. In June, the Government Accountability Office estimated that Social Security will come up about $7 trillion short over the next 75 years.

As if that doesn't sound scary enough, the shortfall soars to $41 trillion if Medicare is stirred into the mix.

"Addressing these problems will require tough choices," the GAO concluded, "and the fiscal clock is ticking."

Of the two candidates, only Obama has laid a proposal on the table to address Social Security's troubles, although his solution would get us only part of the way to solvency.

In June, Obama called for a Social Security payroll tax of up to 4% on incomes topping $250,000 a year. This would apply to about 3% of taxpayers.

The Social Security tax is currently levied on the first $102,000 of a worker's earnings. Employees pay a 6.2% payroll tax and their employers match that amount, making for a total 12.4% tax.

Obama defended his proposal by saying it was unfair for most people to pay the tax "on every dime they make," while the well-to-do pay "only a very small percentage of their income."

However, he would wait a decade before imposing the higher tax, ostensibly so that the tax would coincide with the point at which Social Security actually starts needing the money. As luck would have it, President Obama would be former President Obama by the time the levy hits home.

It's unclear how much money Obama's extra tax would bring in, but AARP's Rother said it wouldn't erase the shortfall. Additional revenue or benefit cuts would be required.

For his part, McCain has embraced Bush's proposal for private accounts, but he's also said that additional steps must be taken to maintain Social Security's solvency. What those steps may be he hasn't made clear, although McCain has stated that "everything has to be on the table."

Everything, that is, except higher taxes.

"I am opposed to raising taxes on Social Security," McCain said last month. "I want to fix the system without raising taxes."

So that apparently leaves cutting benefits, such as raising the retirement age or reducing monthly payouts. But McCain has resisted going out on that particular limb, so what exactly he has in mind remains a mystery.

Basically, there are only three things that can be done: raise taxes, cut benefits or both.

Most experts say it's the latter course -- raising taxes and cutting benefits -- that represents the most equitable solution to the problem. Obviously this is a path no politician wants to walk down.

But there's no choice, not if we want Social Security to meet the needs not just of the baby boomers who will soon be cashing their checks but also the generations to follow. If we wait for the problem to reach crisis proportions before acting, the steps we'll have to take will be all the more painful.

Fixing Social Security is the easy part. Salvaging Medicare and the rest of the healthcare system will be the real trick.